Thursday, July 28, 2016

The Morning Call--the Fed does diddily, now it is the BOJ's turn

The Morning Call


The Market

The indices (DJIA 18472, S&P 2166) were quiet again yesterday, despite the conclusion of the Fed meeting and its slightly more hawkish tone.  Volume was up and breadth continued to weaken.  The VIX was down 1.7%, but still closed for the third day back above the lower boundary of its former short term trading range.   I remain unwilling to make a direction call on this indicator.

The Dow closed [a] above rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17360-19106}, [c] in an intermediate term uptrend {11277-24107} and [d] in a long term uptrend {5541-19431}.

The S&P finished [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2033-2272}, [d] in an intermediate uptrend {1907-2509} and [e] in a long term uptrend {862-2246}. 

The long Treasury was up 1.25% on volume ending above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends. 

GLD was up 1.6%, finishing back above the lower boundary of the former very short term uptrend---which it negated on Wednesday.  Like the VIX, I think that we need more follow through to determine direction.  It ended above its 100 day moving average and short term and intermediate term uptrends. 

Bottom line:  I was a little surprised that stocks took the Fed statement with such ease---but they may believe as I do that the Fed will remain on hold or they may just be waiting for the Bank of Japan’s meeting to conclude (tomorrow).  While stocks lounged seemingly awaiting the next leg up, the VIX is doing its best to recover its short term trading range, TLT and gold made sharp advances and the dollar and oil were hammered.  There is a lot of inconsistency in this pattern and I have no idea what it means; but that kind of behavior is not apt to last long.  Be careful.


            The US economic data reversed yesterday, delivering three below estimates numbers: weekly mortgage and purchase applications, June durable goods orders (primary indicator) and June pending home sales.  That balanced out this week’s dataflow.

            Overseas, the stats were upbeat: second quarter UK GDP beat estimates though July retail sales fell at the fastest rate in four years; Italian business and consumer confidence rose.
            ***overnight, July German and Spanish unemployment fell.

            As usual on a Fed meeting day, its statement was center stage.  Net, net, the FOMC recognized that the economic data is getting better but declined to make a move in the Fed Funds rate or to point with any certainty to when it might.  Investors interpreted the statement as a bit more hawkish than expected---apparently just because the Fed pointed out the obvious.  That said, they left the Market unscathed.    

            The economic ‘ducks’ are lining up for a rate increase (short):

            Japanese PM Abe formally delivered the government’s stimulus package yesterday, though confusion remains---the magnitude of the program was not disappointing; however, there were plenty of questions on how it gets executed.  Part of that problem could be alleviated by the BOJ which meets tomorrow and will announce how it intends to participate in this new and improved plan.  Despite comments to the contrary from several BOJ officials, investors still cling to notion that ‘helicopter’ money will part of new policy. 

Be careful what you wish for (medium and a must read).
            Italian banks facing upcoming stress test are on the brink (medium and a must read):

Bottom line: we are almost through a very busy news week.  So far the economic numbers are mixed, corporate earnings are coming in slightly ahead of expectations, the Fed did diddily but Japan seems to be working on a QEInfinity encore---the government did its part by announcing a big fiscal stimulus policy (though the details are uncertain) and now it is the BOJ’s turn.  So far, stock investors have accepted it all with equanimity while other markets seem to be getting jittery. 

I am confused by these mixed signals but continue to believe that the only reasonable strategy at this point is use the current strength to pare back your big winners and get rid of any losers.

            Update on this earnings season: about one half of the S&P companies have reported.  56% have beaten revenue expectations, 73% have been earnings forecasts, but overall profits are down 3% from last quarter.

            The latest from Doug Kass (medium and also a must read):

            My thought for the day: Investor should work hard to understand how they react to both good and bad times especially when the Market is in the midst of one of its extremes in manic behavior.  One way of doing that is to keep an investment diary.  That is one reason I write this piece.  It is my own investment diary and is particularly helpful in maintaining my cool during those moments of euphoria and panic. Investing is a very emotional business and any wisdom we can extract from our own experience is very valuable.

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    News on Stocks in Our Portfolios
W.W. Grainger (NYSE:GWW) declares $1.22/share quarterly dividend, in line with previous.

Exxon Mobil (NYSE:XOM) declares $0.75/share quarterly dividend, in line with previous.

Automatic Data Processing (NASDAQ:ADP): FQ4 EPS of $0.62 misses by $0.05.
Revenue of $2.9B (+7.8% Y/Y) misses by $40M

Praxair (NYSE:PX): Q2 EPS of $1.39 beats by $0.03.
Revenue of $2.67B (-2.6% Y/Y) beats by $60M

Praxair (NYSE:PX) declares $0.75/share quarterly dividend, in line with previous.

Chevron (NYSE:CVX) declares $1.07/share quarterly dividend, in line with previous.


   This Week’s Data

            June pending home sales rose 0.2% versus forecasts of up 1.3%.

            The June US trade deficit was $63.3 billion versus expectations of $61.1 billion.

            Weekly jobless claims rose 14,000 versus estimates of an increase of 9,000.


            The problem with informational asymmetry (medium):



Quote of the day (short):

My favorite liberal on the DNC email hacks (medium):


            On the heels of the Brexit, Catalan parliament votes to secede from Spain (medium):

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